SEP IRA with Employees

SEP IRA for Small Business Owners with Employees

With a SEP, contributions are made by the employer (employees do not contribute). All eligible employees have their own individual SEP account. Contributions are made by the employer to the employer's SEP as well as to any eligible employee's SEP accounts. The employer can elect to contribute between 0% to 25% of compensation and the percentage of contribution can vary annually at the employer's discretion. The employer and all eligible employees must receive the same fixed percentage. The annual contribution made by the employer is tax deductible.

Who is considered to be an eligible employee?

Generally, when a SEP is established IRS Form 5305 is completed. This short form sets the eligibility requirements for determining who is eligible such as age and length of employment. This form should be kept on file by the employer. When the employer and employees meet the eligibility requirements stated on the completed 5305 form then the employer must make contributions on their behalf. Employers must satisfy the same requirements as the employees. Employers can make the eligibility requirements less strict, but must make contributions to employees if they meet the following 3 requirements:

• 21+ years old
• Have at least 3 years of service in last 5 years
• Have earned at least $450 in compensation from the employer for the year.

SEP IRA Eligibility

Incorporated and unincorporated businesses. Sole proprietors, partnerships, LLCs, Subchapter S and C corporations qualify

In special situations a SEP IRA may be an ideal retirement plan for a business owner with employees. Learn more a SEP IRA.

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Disclosures:

* The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

* Information contained in these sections merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.